Banks Scurry to Attract More Rich Foreigners : American Express Officer Will Even Help You Pick Out a Second Rolls-Royce

This is no place for a bank. Elegantly thin women, tanned and bejeweled, stroll through shops with unpronounceable names. Teen-agers leave Porsches and BMWs idling at curbside as they dash into a gourmet ice-cream shop for $1.40 cones.

This is the Rodeo Collection--as in Rodeo Drive, as in Beverly Hills. It’s the swankiest little marbled mini-mall in the West, maybe the whole world. The atmosphere is too glitzy, too stylish.

And up on the penthouse level of the Rodeo Collection, accessible only by a private, glass-enclosed elevator, is the Western headquarters of American Express Bank International.

“Our location reflects our clients’ own self-image as wealthy people who spend their time in elegant surroundings,” Leonard H. Rushfield, the head of the Western region, is saying as a secretary delivers a small bottle of Evian water and an ice-filled glass to a visitor. “If you have to pick one place to be for wealthy people, this is the one.”

Bought Bank in 1985

Rushfield clearly thinks this is a place for a bank. At least the type of bank that American Express, best-known for its fairly exclusive credit card, is trying to build in California.

The minimum balance to start an account here is $100,000, and Rushfield acknowledges that the bank really prefers half a million dollars for openers. The average client has a net worth of $10 million. Most of the 1,000 customers at the four California branches have made their money in the last 30 years or less, and all of them are foreigners.

Federal regulations do not permit a non-bank giant like American Express to operate a full-service domestic bank. But it can get a specialty charter for what is commonly called an Edge Act bank for the 1919 law, named after the late New Jersey Sen. Walter Edge, that authorizes them.

Edge Act banks can conduct international business across state lines for domestic corporations or conduct regular bank business for people who are not U.S. citizens. Big banks used Edge subsidiaries in the early 1980s to get around laws restricting them to operating intrastate. They primarily served the international needs of domestic corporations.

Haven of Choice

But the progress toward full interstate banking across the country has diminished the role of Edge Act banks in recent years.

In 1985, American Express bought European American Bank, an Edge Act bank in Los Angeles, and set about trying to gain a share of one of the few growth areas in banking--catering to extremely wealthy foreigners who make up what is called the private international banking market.

Along with its New York headquarters, the bank has branches in Miami, San Diego, Los Angeles, San Francisco and the new Western headquarters in Beverly Hills.

In this era of the global economy, wealthy foreigners are as comfortable banking in the United States as in their home countries--often, more so, as a result of the relative stability and security of the U.S. banking system.

For increasing numbers, Southern California is the haven of choice because of its climate, diversity and, in the case of Latin Americans and Asians, proximity. As a result, competition for these select customers has heated up here in the past couple of years.

“Everybody likes to serve the client with $100 million dollars,” said David Rothstein, manager of the international private banking division established 2 1/2 years ago by Los Angeles-based First Interstate to focus on rich people in Latin America and Asia. “It’s a heavily solicited market.”

Special Aura

Despite scaling back its international presence and losing key executives to rivals, Bank of America remains a leader in the field here. But competition is increasing from New York’s Citibank and Chase Manhattan, as well as Los Angeles-based Security Pacific and branches of such elite foreign institutions as Credit Suisse and Union Bank of Switzerland.

“California is obviously the gateway for the Far East, and a critical aspect of the business is getting astride those international investment flows into the United States,” said David E. Gibson, head of worldwide private banking for Citicorp.

Citicorp maintains branches of its Edge Act bank in Los Angeles, San Francisco and San Diego. A branch was opened in Honolulu earlier this year. After years of focusing on corporate business, Citicorp is trying to attract wealthy foreigners by stressing its broad range of services as the nation’s biggest bank.

Credit Suisse, which is not an Edge Act bank and serves U.S. citizens and foreigners at its branch in Los Angeles, has a special aura that appeals to certain Americans and foreigners alike.

Competitive Edge

“For some, you have a Swiss bank account as you wear a Rolex watch or drive a Mercedes or Porsche,” said Frank Meister, manager of the Swiss bank here. “One woman wanted to know if she could have a checkbook and write checks on her Credit Suisse account. Of course she could.”

The customers these banks are clamoring for fit a general profile. They are very rich and they are self-made. Most have achieved their wealth in the past 10 to 30 years, probably from manufacturing. Old money is more likely to be tied to old banking relationships.

Most of the international private banks require a minimum deposit of $100,000; some go as high as $500,000. But clients invariably entrust far more to these specialty bankers.

Many of these very rich people are venturing into the United States for the first time, seeking investments in commercial real estate and stocks and bonds. They own a second (or third or fourth or fifth) home here, perhaps in Beverly Hills or Bel-Air or along the coast. Many buy condominiums for their children attending USC or UCLA or Stanford.

They expect their bankers to assist them in all of these investments. And this is where the big financial institutions have a real edge over smaller competitors.

Citicorp’s Gibson called California and the company’s Edge Act bank here “an intercept point,” meaning that clients are signed up here and then offered the same extensive range of investment services available to domestic clients.

The same attempt to funnel these clients to other services goes on at American Express, which owns the New York-based Shearson Lehman Hutton brokerage and a number of other financial institutions.

In return, the banks collect hefty fees, averaging about $2,500 a year at most private banks. And these are customers who rarely default on a loan or miss a credit-card payment.

For the high fees, the customers receive much more than the average bank customer. They are pampered in lavish offices far away from teller lines. Banks can never do too much for these rich folks, whether it is locating just the right office building for a $20-million investment, finding the proper private school for a child or lining up a doubles partner for tennis.

The private international banks are a mirror image of the specialty departments maintained by most major American banks to cater to wealthy U.S. citizens. And both tread on the egalitarian American notion that bank services should be available to everyone.

“Banks are sometimes criticized for the way they cater to rich customers,” said Rothstein at First Interstate. “If you were running a widget factory, nobody would criticize you for treating the customer who bought 250,000 widgets better than the one who bought 200.”

Clients Usually Referrals

Rushfield at American Express recalled the time one of his account officers spent a weekend helping a customer buy a second Rolls-Royce. His bankers often visit art galleries with their customers to negotiate prices.

“Despite their wealth, these people are very price-conscious,” he explained.

This sort of customer rarely walks in off the street to open an account. Rothstein recalled the day a year or so ago, however, when a man who was angered by a teller at a rival bank walked into his office with a check for several million dollars. An account was opened immediately.

Far more often, customers come from referrals and carefully cultivated relationships.

American Express has a large client base among the Iranian exile community in Beverly Hills as a result of the connections of its executive vice president, Soleyman Aghaie, a former banking adviser to the late Shah of Iran.

For Aghaie, a banker’s services sometimes extend to helping arrange the clandestine transport of people and wealth in various forms out of Iran as well as sending money on behalf of customers to relatives still in the Mideast nation.

Although there are overlaps and exceptions, rich foreigners tend to concentrate in particular areas for financial services in California. Wealthy Mexicans and other Latin Americans are often more comfortable in San Diego, while Taiwanese and offshore Chinese like San Francisco. Indonesians, Iranians and Japanese are attracted to Los Angeles.

But representatives of all these nationalities gathered last month when American Express Bank International celebrated the official opening of its split-level penthouse office in the Rodeo Collection.

There was champagne and Continental cuisine catered by a gourmet French restaurant. A string quartet from the Los Angeles Philharmonic set the mood as 500 guests mingled in the marbled Rodeo Collection mall or toured the bank’s offices, where bleached wood, pastel walls and specially commissioned paintings of California scenes set a tone of casual elegance.

As James D. Robinson, the chairman and chief executive of the parent American Express, walked through the offices that night in June, he turned to Rushfield and said: “This just doesn’t look like a bank.”